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Wilson Corporation (not real) has a targeted capital structure of 40% long term debt and 60% common stock. The debt is yielding 6% and the corporate tax rate is 35%. The common stock is trading at $50 per share and next year's dividend is $2.50 per share that is growing by 4% per year.
- Calculate the company's weighted average cost of capital. Use the dividend discount model.
The company's CEO has stated if the company increases the amount of long term debt so the capital structure will be 60% debt and 40% equity, this will lower its WACC. Explain and defend why you agree or disagree. Report how would you advise the CEO.
Why does WACC increase and IRR decrease as the capital budget increases? Are there any steps management can take to reverse these trends?
What is value of European swap option that gives holder right to enter into 3year annual-pay swap in four years where fixed rate of 5% is paid-LIBOR is received
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To what section of the statement of cash flows does EBITDA most closely relate?
Coinsurance clauses are found in many property policies as well as in many health insurance policies, although the purpose of each is vastly different. Explain the purpose of the coinsurance in both types of insurance.
Calculate this company's operating cash Flow. Calculate this company's Free Cash Flow (also called "Cash Flow to the Firm").
Cost of Bank Loans Del Hawley, owner of Hawley’s Hardware, is negotiating with First City Bank for a 1-year loan of $50,000. First City has offered Hawley the following alternatives. Calculate the effective annual interest rate for each alternative. ..
Which of the following financing methods is considered a “back-door equity” financing?
Mersey Chemicals manufactures polypropylene that it ships to its customers via tank car. Currently it plans to add two additional tank cars to its fleet four years from now.? When evaluating the proposed expansion, what incremental free cash flows sh..
Suppose the yield on a two-year Treasury bond is 5 percent and the yield on a one-year Treasury bond is 4 percent. If the maturity risk premium (MRP) on these bonds is zero (0), what is the expected one-year interest rate during the second year (year..
Company A has assets worth $100,000,000. The company has a 0.2 debt-to-value ratio and keeps a constant-debt policy. Company A decides unexpectedly to reduce its debt by a half replacing it with equity, keeping the debt constant thereafter. The inter..
At expiration, the time value of an option: If the price of an underlying asset has a standard deviation of zero:
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